Introduction
The issue in dispute is whether the corporate reconstruction exemption in s 273B of the Duties Act 1997 (NSW) (Duties Act) is available in respect of the transfer of certain interests in land from SRI Corporation Pty Ltd (SRI) to its wholly owned subsidiary, Big Ben Holdings Pty Limited (plaintiff).
Background
Facts
The plaintiff is the head company of The Bloomfield Group (TBG). Bloomfield Collieries Pty Ltd (BCPL) is one of the companies in TBG that operates the Bloomfield Colliery. The mine located near Newcastle had regulatory approval to operate the mine until 2030, with an application to extend to 2035.
Coal is transported via a rail loop, passing over three contiguous lots of land owned by SRI, Philcant Nominees Pty Ltd (Philcant) and Dudley Project Pty Ltd (Dudley) as tenants in common in equal shares. Philcant and Dudley are independently owned entities that are not part of TBG. SRI is a member of TBG, and the plaintiff is a wholly owned subsidiary of SRI.
SRI, Philcant and Dudley owned the land subject to the terms of a Co-ownership Agreement, forming the Dudley Farm Partnership. BCPL leases this land, paying about $1 million annually, with leases renewed in 2023 to expire in 2028 and no further option for renewal. This created a commercial issue for BCPL and TBG because it had approval to operate the mine through to at least 2030, and pending approval to 2035. This meant that that the Partnership, which was majority controlled by third parties, could extract an outsized economic bargain for access to the land beyond 2028.
The plaintiff expressed interest in acquiring the land as early as 2018, proposing to buy the entire property. An offer made on 19 September 2018 was not accepted.
Further negotiations continued in 2023, with a draft offer on 5 April 2023 to restructure the co-ownership and partnership agreement. The draft proposal stated that SRI would leave the partnership and there would be an exchange of interests in land. This was not finalised.
On 15 December 2023, Philcant and Dudley offered to sell their respective one-third interests in the land for $12 million each. TBG counter offered with $10 million per share which was accepted on 26 December 2023.
In late December 2023 and January 2024, TBG determined that the appropriate entity to acquire Philcant’s and Dudley’s interests in the land was the plaintiff, as well as SRI’s interest.
Following a series of internal discussions and legal advice in 2024, it was resolved for BBH to purchase all three one-third interests directly in one transaction for $30 million, with each vendor receiving $10 million.
On 25 January 2024, SRI, Philcant and Dudley entered a contract to sell their respective interests in all three lots to the plaintiff subject to the existing leases for the sum of $30 million ‘in equal share to each vendor’. The contract also stated that the sale was a GST-free supply of a going concern within the meaning of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (‘the GST Act’).
On 31 October 2024, the contract was completed and a transfer was lodged following payment of duty in the aggregate amount of $1,633,065.
Issues in dispute
The dispute is whether duty can be charged in respect of the acquisition by the plaintiff of SRI’s one-third interest in the land.
As of 25 January 2024, s 273B(1) of the Duties Act applied not to charge duty where the Chief Commissioner was satisfied that:
- ‘the transaction is a corporate reconstruction transaction’ (as that phrase is defined in s 273C), as to which see s 273B(1)(a); and
- the transaction ‘is undertaken for the purpose of…changing the holding of assets within a corporate group’, as to which see s 273B(1)(b).
The Chief Commissioner of State Revenue (‘Chief Commissioner’) formed the view that entry into the sale contract on 25 January 2024 involved a single dutiable transaction, being the sale by the vendors of the whole of the fee simple in the three lots. He took the view that a sale by all co-owners of land of their respective proportional interests in that land is a sale by them of a single interest, being the freehold estate (Brennan J in Nullagine Investments Pty Ltd v The Western Australian Club Incorporated (1993) 177 CLR 635; [1993] HCA 45 (‘Nullagine Investments’) at 644). As Philcant and Dudley were not part of the corporate group, the transaction did not qualify as a corporate reconstruction.
The plaintiff challenged this reasoning, arguing that the relevant dutiable transaction was the transfer of SRI’s one-third interest to its wholly owned subsidiary, and that this transfer should be treated as a corporate reconstruction.
A second issue arose from the Chief Commissioner’s view that the transaction was not undertaken for the purpose of changing asset holdings within the group, but rather to enable the plaintiff to acquire the other two-thirds and obtain the commercial benefits associated with that acquisition.
The Statutory Framework
Section 273B found in Part 1 of Chapter 11 of the Duties Act, provides as follows:
- Duty under this Act is not chargeable on a transaction if the Chief Commissioner is satisfied, on application by a party to the transaction, that -
- the transaction is a corporate reconstruction transaction, and
- the transaction, or the series of transactions of which the transaction is a part, is undertaken for the purpose of either or both of the following -
- changing the structure of a corporate group,
- changing the holding of assets within a corporate group, and
- the transaction, or the series of transactions of which the transaction is a part -
- is not undertaken for a purpose of avoiding or reducing duty under this Act on another transaction, and
- is not undertaken for the sole or dominant purpose of avoiding or reducing a liability for tax, other than duty under this Act, under a law of an Australian jurisdiction.
Corporate reconstruction transaction is defined for the purposes of Part 1 by s 273C as follows:
For the purposes of this Part, a corporate reconstruction transaction means -
- a transfer, or agreement for sale or transfer, of dutiable property between corporations that are members of the same corporate group, or
- a surrender of an interest in land by a corporation to a corporation who is a member of the same corporate group, or
- a vesting of dutiable property if the dutiable property was held, immediately before the vesting, and continues to be held, immediately after the vesting, by corporations who are members of the same corporate group, or
- an acquisition of an interest in a landholder (within the meaning of Chapter 4) by a corporation if the interest is acquired from another corporation who is a member of the same corporate group, or
- an application to register a motor vehicle as a result of a transfer of the vehicle between corporations who are members of the same corporate group.
Submissions
What was the dutiable transaction?
The Chief Commissioner submitted that the only transaction that occurred on 25 January 2024 was the sale of the fee simple in all three parcels of land. He submitted that SRI, Dudley and Philcant acting in concert sold the fee simple in each lot to the plaintiff as purchaser. Thus, there was a single dutiable transaction in relation to a single item of dutiable property, being (in each case) the fee simple. The Chief Commissioner relied on Nullagine Investments.
Was there a corporate reconstruction transaction?
The Chief Commissioner submitted that that Plaintiff’s interpretation could lead to the absurd outcome that an agreement for the sale or transfer of the same property could be charged more or less duty depending on whether the transfer is from a single vendor or multiple vendors.
Was the transaction undertaken for the purpose of…changing the holding of assets within a corporate group?
The Chief Commissioner made two submissions regarding the purpose of the plaintiff’s acquisition of SRI’s interest in the parcels of land:
- the transaction was one in ‘series’ of transactions and that the relevant inquiry is as to the purpose of the ‘transaction or the series of transactions of which the transaction is a part’. He submitted that the other transactions in the series were the transfers of the other one-third interests in each parcel of land by Dudley and Philcant. When all transactions in the series are viewed in the “round”, he submitted that it is apparent that the purpose for which the series of transactions was entered into was not to move assets between members of the corporate group; and
- the purpose of the transaction be identified by reference to the agreement as a whole which shows that the plaintiff’s purpose was to unwind the partnership, to ensure that TBG took control of the land, and to ensure that the partnership was not in a position to extract an outsized economic bargain from its ownership of the land.
The Chief Commissioner relied on a ‘change in purpose’ that occurred in the series of internal discussions occurring in 2024. The Chief Commissioner submitted that because the form of the transaction was altered to achieve the identical result by way of a single agreement, it is not possible to say that the purpose of any part of that agreement was any different to the purpose for which the agreement as a whole was entered into. The Chief Commissioner submitted that the reason for the change was to cause a change in GST treatment, although he did not submit that the change in GST treatment avoided any GST, because he accepts that the transactions would otherwise have led to the same GST being paid.
Decision
What was the dutiable transaction?
The Court rejected the Chief Commissioner’s interpretation of Nullagine Investments and clarified that the case does not support the view that co-owners can be said to own and be capable of disposing of the fee simple in the whole land. Rather, Justice Brennan’s reasoning was that each co-owner owns on their own behalf an estate in fee simple in a share in a parcel of land, and when taken together with the other co-owners, these separate estates exhaust the rights of ownership in the whole, but they are not an estate in fee simple in the whole.
The Court stated that it must be understood as saying that when multiple co-owners concur in selling their separate interests to a single purchaser, then that single purchaser – having thereby acquired the three separate estates in fee simple that exhaust ownership of the whole land – takes a single estate in fee simple in the whole of the land. It is not authority for the proposition that co-owners acting in concert either own or can dispose of the fee simple in the whole of the land.
The Court was unable to accept that the land sale contract entered into by the parties on 25 January 2024 involved a single dutiable transaction concerning a single item of dutiable property within the meaning of the Duties Act. The Court found that it was rather, a transfer of three separate estates in each parcel, the result of which was that the plaintiff came to hold the fee simple in the whole of each parcel.
Was there a corporate reconstruction transaction?
The Court found that SRI’s agreement to transfer its one-third interest in each parcel of land, was between itself and its wholly owned subsidiary, and therefore was a corporate reconstruction transaction within the meaning of s 273C of the Duties Act.
The Court disagreed with the Chief Commissioner’s submission, stating a difference between the sale of the fee simple in land and a sale by co-owners of their respective fractional interests in the land. Apart from anything else, the latter may or may not be to a single purchaser.
Was the transaction undertaken for the purpose of…changing the holding of assets within a corporate group?
The Court disagreed with the Chief Commissioner’s first submission, stating that it was not appropriate to describe the three dutiable transactions which occurred under the contract as a series of transactions.
The Court found that the contract between TGB and Dudley and Philcant was entered into for the purpose of bringing the partnership to an end and to ensure that they could not demand above-market returns from ownership. The plaintiff also wanted to own the fee simple.
The Court also found the purpose for which SRI and the plaintiff entered into the agreement to transfer SRI’s interests in the land was in order to move SRI’s interests in the land to the plaintiff. In the facts of this particular case, the Court stated that it would be quite artificial to say that SRI sold its assets to the plaintiff for the purpose of the plaintiff acquiring assts from third parties.
The Court also found that the purpose of moving from a two-stage process to a single transaction was to secure more convenient GST treatment associated with making an acquisition under Division 38 of the GST Act.
Given the nature of the various things that the plaintiff was attempting to achieve by the land sale contract, the Court stated that it had no difficulty in concluding that the acquisition by the plaintiff of SRI’s interest in land was undertaken for the purpose of changing the holding assets within a corporate group within the meaning of s 273B(1)(b).
Orders
- The Duties Notice of Assessment No 10877651-001 issued on 7 August 2024 in respect of the contract for sale and purchase of land dated 25 January 2024 between SRI Corporation Pty Ltd, Philcant Nominees Pty Limited and Dudley Project Pty Ltd, as vendors, and Big Ben Holdings Pty Ltd, as purchaser, is revoked.
- The matter is remitted to the Chief Commissioner of State Revenue to issue an amended assessment to give effect to the decision of the Court pursuant to s 102(1) of the Taxation Administration Act 1996 (NSW).
- The defendant is to pay the plaintiff’s costs as agreed or assessed.
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